Anti-fracking and won’t sell, but still liable for drilling accidents?

Linda Warner sits in front of her stacks of letters she's received from various oil and gas companies trying to lease her mineral rights while at her home in west Greeley.

A little more

We were curious about why or how third-party companies were able to come into another company’s drilling unit and sign up property owners with leases, so we asked the Colorado Oil and Gas Association to explain the lease-buying process in more detail. Here’s their response:

“Operators are all on the same footing as each other. The (Colorado Oil and Gas Conservation Commission mandates that the operator seeking to pool interests make an offer to lease to an unleased mineral interest owner under Rule 530.c. This does not mandate that the operator making such offer to lease under Rule 530.c. is the only operator that an unleased mineral interest owner can lease to. In fact, many unleased mineral interest owners use the Rule 530.c. offer to lease as leverage with other competitor operators to gain more royalty or lease bonus.”

Every time she goes hiking, Linda Warner keeps a look out for heart-shaped rocks. Her collection numbers in the hundreds, ranging from the size of an arrowhead to a volleyball.

During the past five years, though, Warner has developed a different collection. She collects letters from oil and gas companies who want to drill under her home.

She has dozens of the letters. They offer varying amounts for the mineral rights under her tiny plot of land — a patio home within the Triple Creek drilling area in west Greeley. The area encompasses hundreds of acres, under which Extraction Oil and Gas has been drilling this summer.

Though drilling has commenced on the property, oil and gas companies will continue to seek their fortunes at various sites around Weld's urban areas, with potentially thousands of similar letters going out to residents with mineral rights. This is Warner's cautionary tale.

Warner, a former environmental studies teacher at University Schools, is against fracking, but she did more research when the letters first started arriving in her mailbox. She met with companies, then returned to the same conclusion: She wouldn't sell or lease, no matter what.

"It's an ethics issue for me," Warner said. "I just don't want to do it."

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Then, in April, came a unique letter from Aztec Exploration, one offering her a "last chance" to sell those rights — one that said she could be held liable for drilling accidents if she didn't sign. The letter was technically true.

Warner is a non-consenting, force-pooled mineral rights owner. Force-pooling is used almost exclusively in urban areas by oil and gas operators to drill even if they haven't gotten all property owners in the area to agree to it. Operators must make diligent efforts to get property owners to sign leases. If it doesn't work out, those property owners are force-pooled.

The Colorado Oil and Gas Conservation Commission actually prohibits force-pooled owners from being held liable, said Dan Haley, president and CEO of the Colorado Oil and Gas Association.

But that doesn't include lawsuits.

Matt Sura is a Longmont-based attorney who works with property owners to help them navigate the complex world of oil and gas leasing.

Sura said Warner could be held liable. But it would never happen.

Here's why:

» Extraction is the operator for Triple Creek, and if an accident were to happen, any money Extraction owed would come out of production revenue.

» There's so much production revenue, it's unlikely Extraction would seek help in paying that tab.

» If it did, it would seek it from working interest owners, companies potentially like Aztec, that come in, sign owners up for leases, share the costs of drilling and take their cut of production revenue.

» And even if that happened, Sura said, it's more likely Extraction would simply decrease royalty payments to cover costs.

"(Warner) wouldn't be assessed anything," Sura said. "It would be absurd for someone who owns less than 1 percent to be assessed for anything. She has absolutely zero potential liability."

Why is Sura so sure? First, it's never happened in Colorado, and he's fairly certain it's never happened in the United States.

So why did Aztec send the letter?

"I think they're using it as a threat," Sura said. "They are using the threat of forced pooling to attempt to convince property owners to sign a lease that may not be in their best interest."

Josh Witter, the signatory on that letter from Aztec, feels differently. Witter's job is to get people signed up for leases. But Aztec competes with many other companies to get folks signed up. With 98 percent of the Triple Creek drilling unit signed — a high percentage — competition for the last crumbs can be tough.

He agrees his letter is vague and potentially scary. But it works.

He said he gets 10 percent to 20 percent return on those, where property owners call him back and he's able to talk to them about their options.

"The letter wasn't meant to threaten anybody. It was meant to inform," Witter said, adding that nobody likes force pooling — not the operators, not the third-party companies like Aztec and certainly not folks like Warner.

Witter said his company has signed up more than 1,000 households in Greeley, but it's unclear how often Aztec uses the liability tactic to close those deals. It's also unclear whether other companies use similar tactics, although Warner hadn't received a letter like it in the five years she has been collecting them.

"I understand I probably pissed some people off with this letter," Witter said. "But I've also helped a lot of people."

Witter said because most force-pooled people make less on their royalties. His attention-getting tactics make homeowners talk to him, and that eventually gets them more money. That's something Sura would agree with. He reckons anybody with decent legal representation should be able to get 20 percent royalties from everything pumped out of their patch of earth — straight from the top — if those people live above the Wattenberg field, which includes Warner.

Being force-pooled, Warner gets 12.5 percent.

Warner's first yearly check came this past October. It was $41.43.

Warner hasn't yet cashed the check, worried it might further implicate her or increase her liability. She'll collect them, like the letters.

Tyler Silvy covers city and county government for The Greeley Tribune. Reach him at tsilvy@greeleytribune.com. Connect with him at Facebook.com/TylerSilvy or @TylerSilvy on Twitter.

A little more

We were curious about why or how third-party companies were able to come into another company’s drilling unit and sign up property owners with leases, so we asked the Colorado Oil and Gas Association to explain the lease-buying process in more detail. Here’s their response:

“Operators are all on the same footing as each other. The (Colorado Oil and Gas Conservation Commission mandates that the operator seeking to pool interests make an offer to lease to an unleased mineral interest owner under Rule 530.c. This does not mandate that the operator making such offer to lease under Rule 530.c. is the only operator that an unleased mineral interest owner can lease to. In fact, many unleased mineral interest owners use the Rule 530.c. offer to lease as leverage with other competitor operators to gain more royalty or lease bonus.”